Consumer confidence, the general measure of consumers’ economic optimism or pessimism, fell 30 percent from February to April. As businesses began shutting down and people began losing their jobs, they became fearful, which caused an unusually rapid decline in confidence to the lowest level the U.S. has seen since 2011.
While that news should be a cause for concern among retailers, data analytics can help retailers better understand consumer purchasing behaviors and appeal to the changing sentiments of their specific customers to maintain, or even increase, sales.
Smart Business spoke with Jonathan Poeder, director of data analytics at Clark Schaefer Hackett, about the pandemic’s effect on consumer behaviors and what retailers can do to meet new consumer demands.
How is unemployment driving purchasing behavior?
We’ve had a historic rise in unemployment with over 40 million people losing their jobs since mid-March, which brought the national unemployment rate to 13.3 percent in May. That’s really driving consumers to reduce their spending and seek out value.
Research has shown half of U.S. consumers have been reducing their spending. We also see evidence of an increase in value-conscious behavior in the consumer packaged goods market, which is driving up sales of private label products about 19 percent year over year. There was already an upward deterministic trend of private label sales, but it has been accelerated by the pandemic.
There has also been a large shift away from brick-and-mortar toward e-commerce. Some estimates expect brick-and-mortar retail sales will drop by about 14 percent for 2020 and e-commerce sales will increase by about 18 percent.
Historically, consumer sentiment follows closely with economic conditions. The expectation is that, as the economy recovers, consumer sentiment will become more positive. Depending on how things unfold, it could get worse before it gets better. COVID-19 infections are spiking, which may bring another round of closures that could exacerbate consumers’ pessimistic views. Furthermore, in terms of purchasing behavior, there is data that suggest consumers will maintain cost-conscious behavior in a post-COVID economy.
How can individual retailers identify changes in their customers’ behaviors?
National trends are relevant, but it’s good to look at certain characteristics that drive purchasing behavior within individual retailers. People are making fewer trips when they go shopping, so managing inventory is very important. Customers want to feel appreciated, which means retailers should continue recognizing and rewarding loyalty even during a difficult time. Safety is top of mind. Retailers can benefit by having curbside pickup and other options for contactless shopping.
Convenience is key, which means meeting shoppers where they want to shop. That could mean transitioning to an e-commerce platform or providing other ways to make shopping easy for customers. Keep customers’ price sensitivity in mind and find ways to provide value within their budget.
How can retailers use data to stay on top of changing consumer sentiment?
The very first step for retailers is to make sure they have clean data as a foundation for analysis. That foundation can then support business intelligence tools — software that connects their data to create dashboards, or automated reports. The dashboards include key performance indicators and data visualizations that tell retailers how their business is doing in real time.
The next level is incorporating predictive analytics, which uses sophisticated algorithms and machine learning to generate predictions about the future. That enables retailers to determine which customers to target with promotions to drive the greatest incremental revenue, or to predict how much inventory should be kept on hand.
Many retailers don’t have the budget or skillset to take full advantage of the analytical tools and methodologies out there. Fortunately, there are service providers who specialize in data analysis. They can help retailers analyze all aspects of the customer experience and identify strategies to drive more positive purchasing behaviors during a difficult time.
Insights Accounting is brought to you by Clark Schaefer Hackett